‘Wholesale investor’ rules up for review

In a consultation document released on April 2, the Financial Markets Authority (FMA) has sought feedback on proposals to dispense with the need to issue a warning to investors with $750,000 or more to invest in a product.

Under the Financial Markets Conduct Act (FMC), product issuers can bypass retail disclosure requirements if an investor meets the $750,000 minimum. However, providers must still issue a warning in such cases and get acknowledgement from the investor that the notice has been received.

“Some businesses and professionals have raised concerns that the warning and investor acknowledgement is not practical in some circumstances and so will have a negative impact on New Zealand’s debt capital markets,” the FMA consultation document says. “In particular, there is a concern fewer offers will be made by overseas-based issuers.”

The FMA says the main problem was identified in the ‘Kauri bond’, where foreign entities register and issue NZ dollar denominated debt securities in New Zealand.

While the regulator admits the wholesale investor rules, based on the $750,000 minimum, could prove a sticking point in the Kauri bond market “we also understand that some form of investor certification is a common requirement for wholesale transactions in overseas markets”

“… and that an obligation to obtain such a certificate is not likely to have a material impact on decisions whether to make offers in NZ,” the FMA document says.

The regulator says product providers could also seek relief via other definitions of ‘wholesale investor’, including where investors “self certify”.